The sell-down also affected European markets, sending them lower in early trade.

The FTSEurofirst 300 index of top European shares was down 1.8% at 1,436.34, its lowest since Dec 5.

Shares on Germany’s DAX fell 2%, the FTSE 100 was down 1.6% and the CAC 40 fell 1.7%.

Fund managers said investors in the region were monitoring the opening of the Chinese Parliament’s annual full session on March 5 for any fresh initiatives to try to rebalance the nation’s fast-growing economy.

UBS AG global economist Paul Donovan described the sell-off as an over-reaction, adding that the countries’ economic fundamentals would prevail.

Investors became more cautious after weaker-than-expected economic data from the US and US Federal Reserve’s former chairman Alan Greenspan’s remarks about a possible recession in the US, he said.

“The sell-off of global stock markets, which has entered into its second week, will only be short term as economic fundamentals of these countries are still strong,” Donovan said at a media briefing in Kuala Lumpur on March 5.

On Malaysia, he said: “One or two weeks of financial volatility, especially the stock markets, would not affect foreign direct investments into the country.”

Analysts said local funds, which had entered the market on Feb 28 when the KLCI fell more than 100 points in the morning session, were now staying on the sidelines due to continued sell-down.

Hwang-DBS Investment Management Bhd chief investment officer David Ng said the recent sell-down was due to fears that China might implement further tightening policies that could significantly restrain its growth rate, while there are now fears of a US recession.

“Fundamentals are still intact and we expect the market to stablise and regain some upward momentum.

“However, there is fear on the streets. I suspect we are seeing redemption-led selling where fund managers are forced to raise cash to meet redemptions by unit holders,” he said.

Further unwinding of the yen carry trade was also evident as seen in the strengthening yen, he added.